Dynamic Funding and Investment Strategy for Pension Fund Management: A Model Incorporating Asset-Liability Matching Criterions

This study studies the dynamic funding policy and investment strategy for the defined benefit pension schemes with the most comprehensive dynamic models of the pension plan to date. We formulate the optimal decisions of pension plans as a stochastic control problem and solve the problem through dynamics programming. The objective function of our model takes into account of the stability and the solvency of the pension. The investable assets in the model include one risk-free asset and two risky assets while the considered liabilities are a three-dimension process. We first investigate the procedures in deriving the optimal strategies under the specified performance measures incorporating asset-liability matching criterions. Then we apply our method to the pension plan of a semi-conductor and electronics company in Taiwan for illustration.
Keywords: optimal contribution, asset allocation, dynamic programming, performance measure.